Fraud is increasing dramatically for “card not present” financial card transactions such as credit card, debit card and charge card transactions. In such transactions, business is typically effected remotely, e.g. by Telephone or Internet Shopping. The purchaser discloses his or her name, credit card number and expiry date in order for the credit card to be charged for a product or service.
These sorts of transactions are different to “card present” transactions at Electronic Point-of-Sale Terminals or the like, where both the cardholder (purchaser) and the card are required to be physically present. The purchaser is required to sign an authorization to permit a transaction to be charged against that card's account. The merchant is accountable for the verification and authentication of the card and the validation of the cardholder's identity.
By the fact that:
                1. A recognisable card is presented        2. Identification, Authorisation and Entitlement processes are enforced        3. The location of the transaction is legitimateThen the transaction qualifies as a “card present” transaction.        
Typically in “card not present” transactions it is not possible to verify the identity of the purchaser and the validity of the “card”. Anybody knowing the information contents of a valid credit card can make purchases and charge that card account with “card not present” transactions. The purchaser need not even have the card. Another a common fraudulent practice is to acquire discarded credit card receipts, which contain the necessary account information, to create fraudulent “card not present” transactions. In order to avoid this, some merchants will only deliver to the address registered with the customer's credit card issuer (usually a Financial Institution). More recently, computer programs have been developed and made available on the Internet that successfully generate random credit card numbers.
One particular area where the use of credit cards is increasing exponentially is on the World Wide Web in e-commerce E-Tailer websites and the like. Whilst credit and debit cards are currently the only feasible ways for such sites to be paid for their products or services, the lack of security of transactions across the Internet, even if encrypted, has resulted in many financial problems and privacy concerns. Because transactions can be intercepted or monitored, unscrupulous persons are obtaining credit card numbers and fraudulently using them for other purchases. The level of security of websites varies considerably and many sites have found themselves being attacked for the contents of their databases containing credit card details.
In response to the potential and actual problems, the international bodies responsible for credit cards, including VISA and MasterCard, have introduced premium charges associated with “card not present” transactions. As these premiums are not normally charged on “card present” transactions, the vendor, who is competing with traditional vendors using point-of-sale “card present” transactions, has to bear a substantial overhead; this reduces his profit margin in order to remain competitive. The main reason that the international card issuing bodies claim that the premiums are justified is that a consumer can claim against a credit card issuer if the order is not properly fulfilled. Equally, where there is a dispute over a “card not present” transaction, such as the validity of the amount charged, authenticity of the transaction or proven receipt of goods the rules favour the consumer against the merchant. The merchant is accountable for all costs for transactions in dispute. In addition, in order to cover themselves against losses and overheads from dealing with these fraudulent transactions the card issuers add a premium to the merchant discount rate, as a form of insurance.